Intel plans layoffs as profits slide

Intel plans layoffs as profits decline, prepares to launch three new 65nm processors.

by
Ben Ames
, | 28 Apr 06

Intel expects a 3 per cent drop in revenue for 2006 and plans a reorganisation that could include layoffs over the next 90 days, CEO Paul Otellini said on Thursday.

Intel profits will drop from $12.1 billion in 2005 to $9.3 billion in 2006, Otellini predicted, speaking at the company's Spring Analyst Meeting in New York. In response, Intel will cut spending this year by $1 billion, cut capital expenditures by $300 million and begin a 90-day structural reorganisation of "non-performing business units."

Immediate changes

"We are going to restructure, repurpose and resize Intel for the future," Otellini said. He did not cite any numbers for potential layoffs of the company's 100,000 employees, but he said the changes would come soon.

"It would be too simplistic to simply do a reduction in force. Our analysis will be completed within 90 days, but we will not wait that long to take action. This will be a full structural reorganisation," he said.

The disappointing financial numbers result from a slump in the growth rate of PC sales from 12 per cent or 13 per cent in recent years to 8 per cent or 9 per cent in 2006, excess inventory of microprocessors at retailers and a loss of market share.

Otellini did not mention names, but AMD gained market share in the first quarter of 2006, according to its earnings report.

Revenue declines

Intel's revenue forecast is a sharp change from strong growth in recent years, which included 13.5 per cent annual increases from $30.1 billion in 2003 to $34.2 billion in 2004 and $38.8 billion in 2005. Intel will count net revenue in 2006 of $37.7 billion, Otellini said.

In profit terms, that will cause a sudden slump. Intel earned $7.5 billion in 2003, $10.1 billion in 2004, and $12.1 billion in 2005. Profit will fall to $9.3 billion in 2006, Otellini said.

In addition to the reorganisation, Intel will try to regain market share by launching three dual-core, 65-nanometre processors in coming months.

Intel casts its chips

"There has been a lot of anxiety over our market-segment share. When you look at a slope of the graph, it's not terribly pretty," Otellini said.

So Intel will launch its Woodcrest chip for servers in June, its Conroe chip for desktops in July and its Merom chip for mobile PCs in August. Together, they will help recapture part of the lost business, but Intel lost market share in three segments of the market over the first quarter of 2006, according to the company's senior vice president Anand Chandrasekher.

Intel lost market share in channel and consumer retail areas for planning reasons; it did not build enough chipsets in the second half of 2005, he said.

Intel lost market share in servers for competitive reasons: "We did not meet the needs of the marketplace or our competitor had a better product than we did," Chandrasekher said.